This paper purports to study the contribution of R&D at home and abroad to the firm's inventive activity, using a sample of 137 Japanese multinationals. The empirical analysis relates the number of inventions in Japan and that in the US, as measured by the number of patents issued by the USPTO, to the parent's R&D, the US subsidiaries' R&D, the presence of R&D in Europe, the firm's experience in the US, entry mode, and industry dummies. In addition, to study the subsidiary's role in sourcing local technological knowledge, we construct indices of local technological strength of the state in which the subsidiary is located. The results, most importantly, indicate that these indices positively contribute to inventions at home and in the US among Type R firms, whose R&D subsidiaries mainly aim to research, suggesting that knowledge sourcing is an important function of these subsidiaries and locational choice is important for this purpose. These results do not hold among Type S firms, whose R&D subsidiaries mainly aim to support local manufacturing and sales activities. (C) 2004 Elsevier B.V. All rights reserved.